Thursday, January 3, 2019

Apple sales warning: How Wall Street reacted - Business Insider

Apple gave Wall Street a nasty surprise on Wednesday when it issued its first sales warning in more than a decade.

Apple had previously told investors to expect revenue of between $89 billion and $93 billion in its first quarter. On Wednesday, it revised that estimate down to $84 billion, 7.6% lower than it had expected.

It listed numerous reasons for the slowdown, including economic weakness in emerging markets, especially in China, where things have been exacerbated by trade tensions with the US.

Analysts responded by near-universally reducing price targets. Some said Apple's issues were worse than feared, while others said it exposed serious structural issues at the company.

The company's stock price was down 8.5% in premarket trading on Thursday.

Here's what Wall Street is saying about Apple's sales warning:

Wedbush

The analyst Daniel Ives did not mince his words, calling the sales warning "Apple's darkest day in the iPhone era."

"The magnitude of the top-line miss (~8%) with China demand the culprit was jaw dropping in our opinion and will heavily weigh on shares," he said.

Ives added that it was not yet time to "declare the iPhone growth story is dead in the water," however. "Going forward this is an installed base story of 750 million active iPhones worldwide with 350 million of those in the current window of an upgrade opportunity over the next 12 to 18 months," he said.

Price target: $200 (lowered from $275)

Goldman Sachs

On the back of Apple's update, Goldman Sachs reduced its 2019 financial-year revenue projection by 6% to $253 billion. It said Apple was more sensitive to macroeconomic changes than most firms.

"We don't see strong evidence of a consumer slowdown heading into 2019 but we just flag to investors that we believe Apple's replacement rates are likely much more sensitive to the macro now that the company is approaching maximum market penetration for the iPhone," Goldman said.

Price target: $140 (lowered from $182)

Longbow Research

Longbow had this damning take on the theory that Apple's services and new product revenue could stave off iPhone issues:

"The magnitude of the China-led sales shortfall is a clear wakeup that the bull thesis of growth in new products and high-margin services and expanded capital return does not currently carry enough weight to mitigate a substantial decline in iPhone demand."

Citi

"How low can Apple go?" was the question Citi asked. It added that the effects of trade tensions between the US and China were worse than feared.

"While we have been very vocal about the negative impact from the trade tensions resulting in a negative impact to demand for Apple's products in China with our iPhone and sales estimates below consensus as detailed in our December 10th report Global Tech Views: How Low Can Apple Go?: Trade Wars are Bad for Tech Stocks, we were surprised about the magnitude of the miss and the negative impact of China demand for iPhones," Citi analysts said.

BMO Capital Markets

It was much the same message from BMO. "We have been cautious surrounding the newly launched iPhone's ability to drive an upgrade cycle, particularly in China, and December quarter results are worse than we would have expected," it said.

Price target: $153 (lowered from $213)

Bank of America Merrill Lynch

Bank of America Merrill Lynch said things could yet get worse for Apple. "Although the trade tensions with China could ease in 1H19, the broader demand weakness and slower upgrade cycles are likely to push units much lower in F19 (we now model 181mn units down from 210mn previously)," it added.

Price target: $195 (lowered from $220)

Nomura

Analysts at Nomura said the iPhone miss was "severe" and suggested the weakness "was primarily in the new XS/XR models." The firm added that Apple's issues were "partly structural, partly cyclical," but said there were "bright spots" in services and wearable tech, such as the Apple Watch.

Morgan Stanley

"China is following in the footsteps of the US market with lengthening smartphone replacement cycles slowing overall market growth," Morgan Stanley said of Apple's China issues.

Price target: $211 (lowered from $236)

UBS

UBS suspects the Apple "shortfall was primarily iPhone XR-related." It predicts that iPhone revenue will fall 15% in the three months from October to December, making it Apple's worst end to a calendar year "by far."